QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. For the period ended
December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number 0-18612
I.R.S. Employer Identification Number 84-1062555
TV COMMUNICATIONS NETWORK, INC.
(a Colorado Corporation)
10020 E. Girard Avenue, #300
Denver, Colorado 80231
Telephone: (303) 751-2900
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that
the registrant was required to file such report(s), and
(2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date: 17,981,133 shares of the Company's
Common Stock ($.0005 par value) were outstanding as of
December 31, 1996.
<PAGE>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
INDEX Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of
December 31, 1996 (unaudited) 4
Consolidated Statement of
Operations for the Three and
Nine months ended December 31, 1996
(unaudited) 6
Statements of Cash Flow for the Nine
months ended December 31, 1996
(unaudited) 8
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 13
SIGNATURES 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
Unaudited
Current Assets:
<S> <C> <C>
Cash $ 556,183 $ 1,517,449
Investments 2,364,513 2,186,883
Accounts Receivable 30,948 111,616
Prepaid Expenses 231,029 47,855
Inventory 152,364 160,030
Current Portion of Notes 1,947,988 2,505,013
Current Portion of Def. Tax 607,838 607,838
Total Current Assets $ 5,890,863 $ 7,136,684
=========== ============
Property and Equipment-Net 2,951,325 $ 2,543,500
_________ ____________
Other Assets:
Notes Receivable $ 2,917,421 $ 3,667,415
License Agreements - Net 1,294,424 1,359,556
Other Assets 361,131 461,131
Deferred Income Taxes 119,503 119,503
_______ _______
Total Other Assets 4,692,479 5,607,605
_________ _________
Total Assets $13,534,667 $15,287,789
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1996 1996
Unaudited
<S> <C> <C>
Current Liabilities
Accounts Payable $ 691,190 $ 690,779
Accrued Expenses 383,985 477,721
Current Portion of
Long-Term Debt 36,119 33,701
Current Deferred Gain 2,021,245 2,021,245
Taxes Payable 140,734 131,722
Advances From Stockholders 1,171,146 1,362,902
Subscriber Deposits 24,695 24,455
______ ______
Total Current Liabilities 4,469,114 $ 4,742,525
_________ ___________
Long-term Liabilities:
Long-term Debt $ 1,528,200 $ 1,510,240
Long-term Deferred Gain 3,221,812 3,357,263
_________ _________
Total Long-term Liabilities $ 4,750,012 $ 4,867,503
___________ ___________
Stockholders' Equity
Class A preferred
stock, $1 par value;
none issued or
outstanding $ 0 $ 0
Class B preferred stock,
$1 par value; 28,813
shares issued and
outstanding 28,813 28,813
Class C preferred stock,
$1 par value; 780,000
shares issued and
outstanding 780,000 780,000
Class D preferred stock,
$1 par value; 4,864,000
shares issued
and outstanding 152,000 152,000
Common Stock,$.0005
par value; 100,000,000
shares authorized, 17,981,133
shares issued and
outstanding 9,016 9,016
Additional Paid in
Capital 6,575,211 6,575,211
Accumulated (Deficit) (3,229,498) (1,867,279)
___________ ___________
Total Stockholder's Equity $4,315,541 $5,677,761
__________ __________
Total Liabilities and
Stockholder's Equity $13,534,667 $15,287,789
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Three Months Ended September 30, 1996 (Unaudited)
Unaudited Unaudited
3 Months 3 months
Ended Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Total Revenue $83,269 $ 214,927
Revenue - Sold Cable
Operations 500,928 338,962
_______ _______
Total Revenue 584,197 553,889
======= =======
Operating Expenses:
Salaries and Wages 423,082 $ 178,347
Programming Fees 9,038 <4,106>
General and Administrative 603,638 478,008
Depreciation and Amortization 108,204 51,916
Interest 69,692 35,209
______ ______
Total Expenses $ 1,213,654 $ 739,374
Income Before Income Taxes $ <629,457> $<185,485>
___________ __________
Estimated Income Taxes $ 10,012 $ <74,194>
__________ ____________
Income After Income Taxes $ <639,469> $ <111,291>
=========== ===========
Net Income Per Common Share <.04> $ <.01>
===== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Nine Months Ended December 31, 1996 (Unaudited)
Unaudited Unaudited
9 Months 9 months
Ended Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Total Revenue $ 393,485 $ 1,098,665
Revenue - Sold Cable
Operations 1,621,294 2,325,186
Total Revenue 2,014,779 3,423,851
========= =========
Operating Expenses:
Salaries and Wages $ 1,053,833 $ 496,159
Programming Fees $ 27,667 <3,806>
General and Administrative 1,759,584 1,001,538
Depreciation and
Amortization 307,621 149,594
Interest 140,460 69,583
_______ ______
Total Expenses $ 3,289,165 $ 1,713,068
Income Before Income
Taxes $ <1,274,386> $ 1,710,783
_____________ ___________
Estimated Income Taxes $ 87,834 $ 684,313
_________ ___________
Income After Income Taxes $<1,362,220> $ 1,026,470
============ ===========
Net Income Per Common Share <.08> .06
===== ===
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TV COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 31, 1996 (Unaudited)
Nine Months Ended
December 31,
1996 1995
Unaudited Unaudited
<S> <C> <C>
Cash Flow From
Operating Activities:
Net Income (loss) $ <1,362,220> $ 1,026,470
Adjustment to reconcile
net income (loss) to net
cash used in
operating activities
Depreciation and
Amortization 307,622 149,594
Change in certain assets and
liabilities
Accounts Receivable 80,668 <39,097>
Taxes Payable 9,012 113,413
Inventory 7,666 <38,312>
Prepaid Expenses <183,174> <446,215>
Accounts Payable 411 <66,388>
Accrued Expenses <93,736> <66,380>
Subscriber Deposits 240 -0-
Deferred Gain <135,450> <1,645,905>
Deffered Taxes -0- 578,054
Cash flows used in
operating activities $ <1,368,961> $ <434,766>
______________ ____________
Cash Flows From
Investing Activities:
Investments <177,630> <54,317>
Development of Mine -0- 327,392
Property & Equipment <530,281> <127,047>
Notes Receivable 1,307,020 1,741,812
Advance -0- <304,058>
Other 100,000 <90,000>
Cash flows provided by
investing activities $ 699,109 $ 1,493,782
__________ ___________
Cash Flows From Financing
Activities:
Payments of Stockholder
Advances $<191,756> $<510,791>
Long-term Debt 20,378 <87,600>
License Agreements <120,036> <868>
Cash flows used in
financing activities $<291,414> $ <599,259>
Net Increase (decrease)
In Cash <961,266> 459,757
Cash - Beginning of Year $ 1,517,449 $ 1,091,396
___________ ____________
Cash - End of Period $ 556,183 $ 1,551,153
========= ============
</TABLE>
<PAGE>
TV COMMUNICATIONS NETWORK, INC.AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1996 and 1995 (Unaudited)
Summary of Significant Accounting Policies
The summary of the Company's significant accounting
policies are incorporated by reference from TV
Communications Network, Inc., Annual Report on Form 10-KSB
dated June 30, 1996 for Fiscal Year ended March 31, 1996.
The accompanying unaudited consolidated financial
statements include the accounts of TV Communications
Network, Inc., and its wholly-owned subsidiaries. All
material and inter-company accounts and transactions have
been eliminated in consolidation.
Interim Unaudited Financial Statements
Information with respect to December 31, 1996, and
December 31, 1995, and the periods then ended have not
been audited by the Company's independent auditors, but,
in the opinion of management, reflect all adjustments
(which include only normal recurring adjustments)
necessary for the fair presentation of the operations of
the Company. The results of operations for the nine
months ended December 31, 1996, and December 31, 1995, are
not necessarily indicative of the results of the entire
fiscal year.
The preparation of the interim report is based on the same
accounting standards, and the statements are in conformity
with Generally Accepted Accounting Principles (GAAP).
Management believes there are no material misstatements.
Earnings Per Share
Net income per common share is based on the weighted
average number of 17,981,133 common shares outstanding for
1996 and 1995.
Income Tax
From its inception on July 7, 1987, the Company incurred
operating losses through March 31, 1993, which included
certain accrued expenses that are not deductible for tax
purposes until paid, and has net operating loss carry
forwards available to offset future year taxable income.
Stockholders' Equity
The options granted by the Company to Century 21
shareholders originally expired as of November 30, 1994.
However, the Company extended the options to the benefit
of the Century 21 shareholders under the following terms:
The respective number of shares has changed since 1989. At
the Special Meeting of TVCN Shareholders on December 17,
1991 the majority of shareholders of TVCN passed a
resolution authorizing a five-to-one (5-1) reverse-stock
split plan for the Company's Common Stock. Prior to
effecting the reverse split, the total number of shares of
Common Stock issued and outstanding was 75,879,665.
Immediately following the reverse stock split, the total
number of such issued and outstanding shares was
15,175,933. The plan did not favor or discriminate against
any group of shareholders and applied equally to all
shareholders and persons holding rights to acquire common
stock. Accordingly, for those who selected 1. Option A for
Preferred Shares, the old conversion rate of two Preferred
Shares for one share of Common Stock has been adjusted to
implement the five-to-one reverse-split (e.g. there was a
conversion right of 10,000 shares of Preferred Shares for
5,000 shares of Common Stock, now there is a conversion
right to 1,000 shares of Common Stock.) If Option B was
selected, now the exchange of 32 shares of Century 21
stock for 5 options to purchase 5 shares of Common stock
at $0.37 per share is adjusted so that the five (5)
options are one (1) option and the option price per share
is $1.85 (five times $0.37). The option deadline either
to convert Preferred Shares to Common Stock or to purchase
Common Stock has been extended three years from November
30, 1994 to November 30, 1997. These Options are not
transferable.
TVCN is extending the Options for three years, and the
underlying common shares are restricted from public sale
for two years from the date of issuance of common stock
under the options or the effective date of registration of
such shares with the SEC, according to which event occurs
first. TVCN may, but is not obligated to, register these
shares through the SEC for public trading.
ITEM 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Wireless Cable Operations
Salina, Kansas. The Company has acquired the WCTV
station in Salina, Kansas from an affiliated company, and
eased it to a non-affiliated company, which leased 11
more channels from other licensees. Subsequently, the
lessee filed for Chapter 11 bankruptcy protection. In an
open court, TVCN repossessed the four-channel station and
acquired the leases for the remaining 11 channels for
$200,000 and the waiver of the lessee's obligations to
TVCN in the approximate amount of $115,000. TVCN is
currently operating the Salina system, and will attempt to
either develop or sell the system, which broadcasts on 15
TV channels to a base of 418 subscribers.
San Luis Obispo, California. The Company leased the
San Luis Obispo, California WCTV station to Wireless
Telecommunications, Inc. ("WTCI") on June 15, 1995. On
January 1, 1996, WTCI defaulted on its agreements with the
Company, and the Company terminated the lease on February
14, 1996. On February 28, 1996 the Company filed suit to
repossess the station. On June 18, 1996 the Sheriff of
San Luis Obispo County repossessed the station on behalf
of the Company, and the Company has begun operating the
station which broadcasts on 7 channels and has 59
subscribers. The lawsuit has been settled. The terms of
the settlement are as follows: TVCN agreed to pay WTCI
$90,000. In return WTCI relinquished all of its claims to
the San Luis Obispo WCTV station and agreed to sell the
San Luis Obispo BTA to TVCN for $90,000 cash and
assumption of the FCC obligation of $362,168.00 payable
over 10 years, with interest only payments for 2 years and
principal and interest payments for 8 years. FCC approval
has been requested for the transfer of the BTA, and the
transfer has been placed on Public Notice.
Mobile, Alabama. The Company's Mobile, Alabama
license is operated by Mobile Wireless TV. For the use of
this license the Company received cash in the amount of
$100,000 and a promissory note in the amount of $100,000.
The note bears interest at the rate of ten percent, with
interest payable quarterly. The principal is due on May
9, 1997. In addition, the Company receives a transmission
fee which is the greater of $2,000 per month; $0.50 per
subscriber per month; or two percent of the gross monthly
revenues of the station.
Woodward, Oklahoma. The Company's Woodward, Oklahoma
license is leased to Pioneer Telephone Cooperative. The
channel lease provides for transmission fees of $1,000 per
month and expires on March 31, 1997.
Other Stations. The Company owns a station in Hays,
Kansas. In addition, on behalf of its affiliate,
Multichannel Distribution of America, Inc. ("MDA"), the
Company constructed three other stations. These stations
of four channel licenses are in Myrtle Beach, South
Carolina; Quincy, Illinois; and Rome, Georgia. In
consideration for building the stations, MDA appointed
TVCN as the operator of the stations. TVCN is developing
these stations, and is considering offering a premium
programming package such as HBO, ESPN, Showtime, and CNN
at the stations as test markets for this strategy. In the
meantime, the Company is also considering leasing
additional channels, and leasing or selling the channels
to others.
The FCC Spectrum Auction
From November 13, 1995 to March 28, 1996 the FCC
conducted an auction of a certain portion of the microwave
spectrum used by WCTV stations. In this auction the FCC
divided the country into Basic Trading Areas ("BTAs"),
according to certain geographic WCTV markets. The
successful bidder on each BTA acquired the right to obtain
the licenses for all parts of the commercial WCTV spectrum
in the BTA which were not already under license. In order
to qualify to participate in the auction each bidder was
required to pay an up-front payment to the FCC. The
Company's up-front payment was $300,000 with a small
business bidding credit of $400,000.
The FCC conducted the auction as an electronic
"simultaneous multiple round" auction through a specially
prepared automated auction software program. The auction
closed after 181 rounds. Sixty-seven auction participants
made successful bids on one or more BTAs. CAI Wireless
Systems, Inc. was the largest participant in terms of
dollar volume, purchasing 32 BTAs for $48.8 million.
Heartland Wireless Communications, Inc. purchased the most
BTAs, acquiring 93 BTAs for a total of $19.8 million.
The Company was the successful bidder on the
following 12 BTAs: Clarksburg-Elkins, Fairmount, Logan,
Morgantown, Steubenville and Wheeling, West Virginia;
Dickinson and Williston, North Dakota; Scranton-Wilkes
Barre-Hazleton and Stroudsburg, Pennsylvania; Scottsbluff,
Nebraska and Watertown, New York. The Company's net bid
was $1,276,000 (taking into account the 15% "small
business" credit TVCN received). This made TVCN the tenth
largest participant in terms of the number of BTAs
acquired, and the 22nd largest participant in terms of
dollar volume. The total amount outstanding on this
obligation is $1,020,445, which the Company is financing
over ten years as described in the notes to the Company's
financial statements. The FCC has issued the
authorizations, and TVCN has five years to complete the
construction and build out of the BTAs. The Company has
not yet finalized its plans with respect to development of
WCTV stations in these BTAs, and there is no assurance
that the Company will have sufficient resources to develop
such stations.
Mining Business
Mining and Energy International Corp./Liberty Hill
Mine
The Company, through its subsidiary Mining and Energy
International Corp., signed an option agreement with Big
Trees' Trust to obtain the right to develop the Liberty
Hill Mine in Nevada County, California. The extended term
of the option expires June 8, 1997, with an additional
opportunity to sign a lease for a term of thirty years.
During the option period, the Company is required to pay
$40,000 per month as advance royalty or 15% of the ores
mined and sold, whichever is greater. The Company has
paid $520,000 in advance royalty to date.
The Company has begun developing the mine.
Approximately $950,000 of the development budget has been
expended to date, to complete the development phase. The
company has decided to expand the daily production
capacity of the mine to meet the project demand for the
sale of Silica. Additionally $330,000 was invested in
equipment. Weather conditions have caused delays in
completing the development of the mine. Because of such
unpredictable conditions, TVCN cannot project with any
degree of certainty as to the additional funds needed to
complete the development of mine. In addition to gold,
the mine operator hopes to produce and sell substantial
amounts of silica. The Company is relying on the
expertise of Ray Naylor (who is an officer in the
Company's Century 21 subsidiary and a beneficiary of the
Big Trees' Trust) in developing this mining opportunity.
Initial tests have been run, and the results are
encouraging.
Total Revenues
The total revenue for the quarter ended December 31,
1996 was $584,197 as compared to $553,889 during the
quarter ended December 31, 1995 and for the three quarters
ended December 31, 1996 was $2,014,779 as compared to
$3,423,851 for the three quarters ended December 31, 1995.
The decrease was due to the note payoff and the
recognition of the deferred gain from the sale of the
Washington D.C. station, during 1995.
Operating Expenses
Total operating expenses for the three and nine months
ended December 31, 1996 are $1,213,654 and $3,289,165 as
compared to $739,374 and $1,713,067 for the three and
nine months ended December 31, 1995. The increases in
expenses of $474,280 and $1,576,098 are summarized as
follows:
Three Months Nine Months
Increase in Salaries
and Wages $ 244,735 $ 557,674
Increase in Programming
Fees 13,144 31,473
Increase in General &
Administrative Expense 125,630 758,046
Increase in Depreciation
and Amortization 56,288 158,027
Increase in Interest
Expense $ 34,483 $ 70,878
NET (INCREASE) IN TOTAL
EXPENSES $ 474,280 $ 1,576,098
========= ===========
The increase in salary & wages and expenses is due to the
increased time spent in developing new areas of operations
and defending the lawsuit. The increase in general &
administrative expenses are due to development of the
Liberty Hill Mine, the costs of operating the Salina and
SLO systems, and the development costs for other business
opportunities.
Net Gain
The net income after income tax estimate for the three and
nine months ended on December 31, 1996 was $<639,469> and
$<1,362,220> as compared to $<111,291> and $1,026,470
during the three and nine months ended December 31, 1995.
The decreased income during the first three quarters ended
December 31, 1996, is due to the note payment and the
recognition of revenue from the sale of cable operations
in Washington D.C. during 1995. The higher operating
costs also contributed to the losses in 1996.
Income Taxes
See page 9 "Income Tax" note.
Estimated income taxes are calculated at 40% for both
federal and state obligations.
Liquidity and Capital Resources
The Company initially financed its growth through
loans and the sale of stock. The Company will finance its
future growth primarily from the sale of domestic
operations.
To date, the Company has not engaged in any debt
financing. Instead, it has relied on individual or group
investments. The company's cash flow for the nine months
ended December 31, 1996, and December 31, 1995 are
summarized as follows:
December 31, December 31,
1996 1995
Unaudited Unaudited
Cash Flow From Operating
Activities <1,368,961> <434,766>
Cash Flow From Investing
Activities 699,109 1,493,782
Cash Flow From Financing
Activities <291,414> <599,259>
Cash - Beginning of Period $ 1,517,449 $ 1,091,396
___________ ___________
Cash - End of Period $ 556,183 $ 1,551,153
============ ===========
The sales of the Denver, Colorado, Washington, D.C.,
and Detroit, Michigan systems for approximately $17.5
million with a resulting gain of $15.5 million are
expected to adequately cover the Company's current
liabilities along with allowing the Company develop other
wireless cable TV markets in the United States and explore
other business opportunities domestically and
internationally.
Currently, the Company has $ 1,564,319 in long term
debt which is primarily for the purchase of the TVCN
corporate headquarters building in Denver, Colorado, and
for the Basic Trading Area rights purchased during the FCC
BTA Auction.
The Company's current assets and liabilities are $
5,890,863 and $ 4,469,114 respectively. The Company's
cash position is such that management anticipates no
difficulty in its ability to meet its current obligations.
The company currently has $2,364,513 of investments in
government securities.
During fiscal year 1993, the Company raised
$1,000,000.00 in equity investment by sales of its common
stock. The President, a shareholder, and a Director, have
advanced loans to the Company totaling $1,171,146. No
equity transactions have occurred in 1996.
Accounts Receivable and Payable
The decrease in notes receivable, and accounts payable as
of December 31, 1996, is due mainly to the payment of
invoices and receipt of note payments.
Advance from Stockholders
During the period from March 31, 1996 to December 31,
1996, the Company repaid advances from stockholders
totalling $191,756.
Subscriber Deposits
The purchasers of the Denver and Detroit stations limited
the subscriber deposits assumed by purchasers to $50,000
and $114,000, respectively. TVCN is responsible for
subscriber deposits above these amounts.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
(A) Shareholder Class Action Suit
TVCN is a defendant in a class action suit entitled
Merton Frederick, et.al. v. TVCN, et.al. more fully
discussed in the Company's latest 10-KSB filed on June 30,
1996. The class of plaintiffs has been certified by the
court, and fact discovery has been completed. Motions for
summary judgment have been filed by the Company, but are
still pending. No date has been set for the trial. TVCN
is vigorously defending the case.
(B) The Company knows of no other material litigation
pending, threatened or contemplated, or unsatisfied
judgment against it, or any proceedings in which the
Company is a party. The Company knows of no legal actions
pending or threatened or judgments entered against any
officers or directors of the Company in their capacity as
such in connection with any matter involving the Company
or the business.
ITEM 2. Changes in Securities
None. See p. 10 for a discussion of Century 21,
Inc., and potential future changes.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted for a vote of
securityholders of the Company during the third quarter
ended December 31, 1996.
ITEM 5. Other Information
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
TV COMMUNICATIONS NETWORK, INC.
Date: February 14, 1997 /ss/Omar A. Duwaik
Omar A. Duwaik
PRESIDENT/CEO
/ss/Dennis J. Horner
Dennis J. Horner
VICE PRESIDENT/TREASURER
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
TV COMMUNICATIONS NETWORK,
Date: February 14, 1997 /ss/Omar A. Duwaik
Omar A. Duwaik
PRESIDENT/CEO
/ss/Dennis J. Horner
Dennis J. Horner
VICE PRESIDENT/TREASURER
